According to Crunchbase data, venture-backed companies raised only $369 billion in the first three quarters of 2022. A total of $679.4 billion were invested globally in 2021.
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Venture capital firms in Southeast Asia are likely to be more picky next year, with plunging valuations and economic headwinds slowing growth in 2022.
“The era of easy money is already history,” said Yinglan Tan, CEO and founding managing partner at Singapore-based Insignia Ventures Partners.
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Jeffrey Joe, co-founder and managing partner at Indonesia-based Alpha JWC Ventures, said: “The most important thing to look out for in the coming year is how companies will grow, protecting their value. and survive in challenging environments”.
According to data firm Crunchbase, venture capital-backed companies raised just $369 billion in the first three quarters of 2022, a far cry from last year’s entire record-breaking feat. $679.4 billion invested globally — an increase of 98% from the previous year.
Gavin Teo, general partner at Altara Ventures said: “We have seen VC deployment in Southeast Asia increase by 25-30% this year, relatively more than in Indonesia and at the Series B+ stage, and less at the seed and Series A stages”. .
But there’s still a lot of dry powder, according to venture capitalists who spoke to CNBC.
“Most funds have capital to roll out, but they are looking for great investment opportunities,” said Jussi Salovaara, co-founder and Asia managing partner at Antler.
According to data from private markets data platform PitchBook, venture funds raised $151 billion in the first three quarters of this year — meaning the amount they brought in to invest — more than any other funds raised in any previous year.
Sequoia Southeast Asia raised $850 million in June, East Ventures raised $550 million in July, and Insignia Ventures Partners raised $516 million in August.
“We can be proactive and aggressive in implementation, but at what price?” Joe of Alpha JWC Ventures asked.
‘Too caught up in the currency wheel’
Tech stocks tumbled at the start of the year amid rising interest rates and disappointing earnings results. Startups in Southeast Asia are largely unprofitable, with names like Sea group and Grab accumulate billions of losses annually.
“For the past 10 years, it has been invested by FOMO,” says Peng. T Ong, co-founder and managing partner at Monk’s Hill Ventures. He was referring to how big-name investors poured money into crypto exchange FTX that collapsed out of “fear of missing out”.
Southeast Asian tech companies have lost most of their value since going public. The e-commerce giant and Sea’s market capitalization are listed on the NYSE at about $30 billion, down from more than $200 billion at the end of last year.
GoTo’s 400 trillion rupiah ($28 billion) valuation has fallen more than 75% since going public in Jakarta in April, while Grab has lost 69% of its initial valuation of around $40 billion since when it launches in December 2021.
“We’re back to reality. People are starting to go: you need to have a path to profitability. You need to default to being alive,” said Ong, using a term to refer to those companies. The company can make a profit before it runs out of profits. money. “You need to have a positive contribution margin. These are the things we should have said from the start, but we got too caught up in the currency wheel.”
Venture capital firms have push their portfolio companies to widen their runways, for uncertainty lies ahead.
“Investors are spending more of their time and deployable capital helping portfolio companies improve the efficiency of their capital,” said Insignia’s Tan.
“It’s not that we don’t care [profitability] last time,” said Joe of Alpha JWC Ventures, “But almost no startups are profitable in the first five years. Maybe the change in thinking is… let’s be more cautious in development. Yes, they can burn. No, they don’t need to be profitable right now, as long as they use capital efficiently and have a strong unit economy.”
Survival of the Strongest
Insignia’s Tan says this drier fundraising landscape is a test of the true sustainability of business models and industry needs.
Jessica Koh, chief investment officer at Vertex Ventures, said: “The companies that really survive this winter will prove to be the survivors of the bear market. So in a way, in a way. The market is doing a lot for us.”
Some areas such as fast trade have seen casualties. Fast Commerce promises to deliver orders to customers in less than 30 minutes.
Indonesian fast-trade company Bananas announced in October that it would close its e-grocery store business after the economy stalled. It first launched in January.
Indonesia-based e-grocer HappyFresh has ceased operations in Malaysia after seven years, while Grab has discontinued its GrabMart Kilat fast commerce service in Indonesia. Internationally, several companies — Gopuff, Gorillas, Jiffy, Getir, Zapp and Buyk — have announced closures, changed strategies or laid off employees.
“The 15-minute commerce model in Southeast Asia is very difficult because the unit economics are very negative. Cart size and order size are quite small,” said Teo of Altara Ventures.
Insignia’s Tan said, with cash flow swept away, it’s becoming increasingly clear which companies aren’t ready for the challenging environment.
